Posting Cost from Balance sheet to Profit & Loss in a project

There are three ways in which a cost posted to WIP account (Balance sheet) can be posted MANUALLY to actual Cost / Expense account (Profit & Loss). The three ways are as below:

1. Post Cost routine (Realization of cost)

• Project expenses in the project group are set to post to 'Balance sheet'
• Line property where 
• 'Accrue Revenue' is unchecked and 
• 'Capitalize cost' is checked

When the project expense of, say Travel, is posted for GBP 100, then the following transaction is posted to GL:

When the 'Post cost' routine is run manually and posted, the following transaction is posted, which clears the WIP and posts the cost to P&L.

2. Changing the Line Property via project adjustment (Write off cost, denied by client to be billed)

• Project expenses in the project group are set to post to 'Balance sheet'
• Line property 'Billable' where 
• 'Chargeable' is checked
• 'Accrue Revenue' is unchecked and 
• 'Capitalize cost' is checked
• New Line property 'Non-billable'
• 'Chargeable' is unchecked
• 'Accrue Revenue' is unchecked and 
• 'Capitalize cost' is unchecked

Normally what would happen is, whenever these costs will be billed to customer, the cost portion will move to P&L (thus clearing the WIP) and there would be a separate entry to account for revenue and receivables.

However it so happened that client has asked us not to bill the expenses as they think they were not incurred for project. In such a case the cost would still need to be booked to the project but not billed to client. This can be achieved by changing the line property of the expense transaction via the project adjustment routine. The moment the line property for the transaction is changed the cost is moved from WIP to P&L and the Line Property is changed to Non-chargeable.

The core reason why the cost is moved from WIP to P&L is because the line property 'Non-billable' says that the cost should NOT be 'Capitalized' ('Capitalize cost' is unchecked).If the 'Non-billable' line property had 'Capitalize cost' also checked, then the transaction would have still have been in WIP account (Balance sheet) but would have been Non-Chargeable.

Hence after the adjustment, the cost still sits with the project (in the Cost of Sale PNL account) but the line property is now changed to  'Non-billable'. So in conclusion, the line property adjustment does two things effectively:

• Move the cost from WIP to Cost of Sale
• Change the line property from 'Billable' to  'Non-billable'.

Note - In adjusting the line property from 'Billable' to  'Non-billable', the main important thing is the manner in which the 'Non-billable' line property is setup. The 'Capitalize cost' in it should be unchecked.

3. Moving the project transaction to Internal project via project adjustment (Allocate the cost to internal project from a client project)

• Project expenses in the project group are set to post to 'Balance sheet'
• Line property where 
• 'Accrue Revenue' is unchecked and 
• 'Capitalize cost' is checked

This adjustment scenario occurs when you post a cost on to the project, which is initially posted to WIP. These costs could then be passed through to the client at the time of billing or could be recognized on to the project as cost of sale. However after you posted the cost on the project, during review of WIP, the project manager realizes that the cost are neither pass through nor are they related to the project to which they are posted. Hence he needs to move these costs to the internal project. For this the project manager then uses the project adjustment feature to move the cost from the client project to internal project. The accounting effect is still the same as mentioned above, with one difference. The difference is that the cost will be posted to appropriate 'Expense' account and NOT to the 'Cost of Sale' account.

Please refer to the example below:

Project 1

• Project Group - Time and Materials
• Ledger posting search priority - Project
• Post cost (Expenses) - Balance 

Ledger posting setup for Cost is as below. Please refer to the Expense category of Copy.

Ledger posting setup for WIP Cost is as below.

Project 2

• Project Group - Internal
• Ledger posting search priority - Category
• Post cost (Expenses) - Profit and Loss

Expense Journal Posted for Project 1 (where the ledger posting search priority is 'Project')

The postings are as follows:

Debit : 'WIP cost' posting is driven from the 'Ledger posting setup for WIP Cost'.

Credit : Credit posting is driven from the either the Employee vendor / Vendor if employee selected or from the 'Default offset account from expenses' setup.

Moving the project transaction from client project (Project 1) to internal project (Project 2) where the ledger posting search priority for project 2 is 'Category')

To move the transaction from the billable project to an internal project, project adjustment routine is run and the transaction is moved from Project 1 to Project 2. However after posting this, the cost will be posted to actual EXPENSE account and NOT to the COST of SALE account. This is because of the setup in the 'Ledger posting setup' screen for Category 'Copy' (refer to the screen shot above) AND the 'Ledger posting search priority' on the project group of project 2, which is 'Category'. 

The postings are as follows:

Debit : 'Cost expense' posting is driven from the 'Ledger posting setup for Cost'. (As the search direction on the internal project is Category, the actual expense account is selected and not the Cost of sale setup for project group)

Credit : Credit posting is driven by adjustment logic (and NOT by any setup), which reverses the WIP cost posting, as the correct CR posting is already done to the vendor A/P account from the original transaction.

Note - In moving the transaction from TNM to Internal, the main important thing is the 'Ledger posting search priority' (Category) on the Internal project group. If that is also same as the TNM project(.i.e. Project), then the costs will move into PNL upon adjustment but will be moved to Cost of Sale account and not to the actual Expense account (operating expense account).

Conclusion:

The postings in the Project modules are all dependent on following factors which are interlinked:

• Project group settings:
• Post costs  Balance sheet / Profit and Loss
• Accrue revenue check-box
• Ledger posting search priority
• Line property search priority
• Line property settings:
• Chargeable
• Accrue Revenue
• Capitalize cost
• Ledger posting setup (which works in conjunction with 'Ledger posting search priority')
• Project / group line properties (which works in conjunction with 'Line property search priority')

Thanks

Sarang

PwP with respect Unit Price, Discount, Charges and VAT

Standard Behavior of Pay-when-Paid WRT to Unit Price, Discount, Charges and VAT

When the PO line has Discount and VAT AND the Project invoice has NO VAT
Supplier Invoice Section
Invoice Amount = Unit Price + /- Discount + VAT +/- Charges

Supplier Invoice Lines Section
Unit Price – Price for the Item / Service
Amount = Unit Price +/- Discount

Customer Invoice
Invoice amount = Invoice Amount = Unit Price + /- Discount + VAT

**There is no way on a project invoice that I can give ‘Charges’ on to it, if the project invoice only comprises of PO**

When the PO line has Discount and VAT AND the Project invoice has VAT

See the second example below where the ‘Totals’ screen for the Supplier invoice shows all the elements.i.e. Line amount, Discount, Charges, VAT etc.

**Discount is not shown currently in the Totals form as I am accessing it after the invoice is posted. ** Please consider the discount to be 15%

Related PwP form



This proves that: 

Supplier Invoice Section

Invoice Amount = Unit Price + /- Discount + VAT +/- Charges

Thanks
Sarang

Effective Labor Rate (ELR)

ELR means Effective Labor Rate.

Consider an example below to understand the concept.

Employee Hourly Rate - GBP 100
Work Week - 5 days (Mon-Fri)
Daily Hours - 8 hours
Weekly Hours - 40 hours

Employee Rate (Without ELR)

A
Employee works for 8 hours, 5 days a week.

Employee Hourly Rate is = GBP 100

This equates to employee cost of = 8*5*100 = GBP 4000

B
Employee works for 8 hours, 3 days a week.

Employee Hourly Rate is = GBP 100

This equates to employee cost of = 8*3*100 = GBP 2400

Rate remains CONSTANT, Employee total cost VARIES based on number of hours worked.



Employee Rate (With ELR)

A
Employee works for 8 hours, 5 days a week.

Employee Hourly Rate / ELR is = GBP 100 (4000 / 40)

This equates to employee cost of = 8*5*100 = GBP 4000


B
Employee works for 8 hours, 3 days a week.

Employee Hourly Rate / ELR is = GBP 166.67 (4000 / 24)

This equates to employee cost of = 8*3*166.67 = GBP 4000

Rate VARIES, Employee total cost remains CONSTANT based on number of hours worked.

Hence the conclusion is, if the ELR is turned on, the Total Cost per week for the employee does not change, no matter whether the employee works one day or one hour in a week. Its the rate of the employee, that changes.

MOST IMPORTANT

>> ELR is looking at the calendar setup at the employee record on the 'Employment tab' and not at any other calendar setup on the employee.

>> ELR check-box on the 'Cost price' table is read-only and can only be checked when it is checked initially on the employee under 'Project setup'. Chronology of events is like this: You first setup ELR for the employee on the employee record under 'Project setup' and then define the rate for that employee in the 'Cost price' table. The moment you create a record in the cost price table and you select the employee for which the ELR is setup, the ELR check-box in the 'Cost price' table for that line is checked automatically.

>> While setting up the 'Working times' for Working time calendar (the ones which is selected on the worker record 'Employment' tab for ELR to work), user should always select the 'Working time template' or else the working times will be created with status 'Closed'.


Thanks
Sarang